Trump Nominates Fed Chair Foe of High Rates, Markets Weigh Dovish Shift

U.S. President Donald Trump is set to name the next Federal Reserve chair within the coming weeks, with the administration narrowing the field to a select group of candidates, including Federal Reserve Governor Christopher Waller, National Economic Council Director Kevin Hassett, and former Fed Governor Kevin Warsh. The administration has yet to finalize a decision, but recent interviews and public statements have offered insights into the president's preferences and the process. Waller, who has been a vocal advocate for lower interest rates, received praise from Trump after a recent interview, with the president calling him "great." Hassett, currently leading in odds on prediction markets, has emphasized the Fed's independence from political influence.

Trump has made it clear he wants a Fed chair who will support lower interest rates and a more accommodative monetary policy.

The current Fed rate stands between 3.5% and 3.75%, and Trump has expressed a desire for rates as low as 1%. His comments underscore a broader push to stimulate economic growth, particularly in sectors such as housing, where lower mortgage rates could spur activity. However, experts note that long-term borrowing costs, such as those on 10-year Treasury notes, are more influenced by market forces and investor expectations than by the Fed's direct control.

The candidates under consideration have all emphasized their expertise and experience in economic policy, but their approaches to the Fed's role vary. Kevin Hassett, a close ally of Trump, has stressed that the Fed chair must maintain independence and act as a consensus-builder within the Federal Open Market Committee (FOMC). In contrast, Waller, who dissented from the Fed's most recent rate decision in favor of a cut, has argued that current rates remain above neutral levels. Kevin Warsh, a former Fed governor, also favors lower rates but has taken a more measured stance compared to Trump's ambitious targets.

Market Expectations and Prediction Platforms

Prediction markets are closely tracking the odds of each candidate securing the appointment, with platforms like Kalshi and Polymarket reflecting shifting probabilities. As of late December, Kevin Hassett leads with roughly 50% odds, followed by Kevin Warsh at 29% and Christopher Waller at 18%. These probabilities have fluctuated in response to recent developments, including concerns over Hassett's close ties to the White House and the potential for perceived political influence over monetary policy.

The Fed chair appointment is expected to have a significant impact on financial markets and investor sentiment. A more dovish Fed could lead to lower short-term interest rates, which would generally support risk-on assets such as equities and real estate. Longer-term rates, however, are expected to remain influenced by macroeconomic factors, including inflation and growth expectations. Analysts are also watching how the new chair might approach issues such as artificial intelligence, productivity, and the Fed's reliance on backward-looking data.

Regulatory and Policy Considerations

Trump has made it clear he wants the Fed to focus more on growth-oriented policies, and he has criticized the current leadership for keeping rates too high. In a recent national address, he stated that the next Fed chair would be someone who supports "lower interest rates by a lot," aligning with his broader economic agenda. However, Fed insiders, including Hassett, have emphasized that the central bank must remain independent and avoid political interference in rate-setting decisions.

The administration's approach to selecting the next Fed chair has also drawn attention from economic officials and market participants. Treasury Secretary Scott Bessent has noted that the process is moving at the president's pace and that interviews are ongoing. Bessent has defended Hassett's qualifications, arguing that his background as an economist and his experience in the White House make him well-suited for the role. At the same time, he has dismissed concerns about potential conflicts of interest, citing precedents such as Janet Yellen's transition from the Council of Economic Advisers to the Fed chair.

Broader Implications for the Economy

The selection of the next Fed chair will have lasting implications for U.S. monetary policy and economic growth. A more accommodative stance could boost consumer and business spending, but it also carries the risk of reigniting inflationary pressures. The Fed faces a delicate balancing act as it navigates a complex economic landscape, with factors such as global trade dynamics, AI advancements, and fiscal policy all playing a role.

Investors are also keeping a close eye on how the Fed's new leadership might approach its dual mandate of price stability and maximum employment. Recent data shows a slowdown in wage growth for lower and middle earners, while higher-earning individuals continue to see stronger gains. This divergence has raised questions about the effectiveness of current monetary policy and whether a new chair will adopt a different strategy to address labor market imbalances.

As the final decision approaches, markets and policymakers are bracing for a potential shift in the Fed's direction. The next chair will inherit a central bank at a critical juncture, with the balance between inflation control and economic growth hanging in the balance. With Trump's preference for lower rates and a focus on growth, the coming weeks will be pivotal in shaping the Fed's path forward.